I apologize for taking so long to respond to your comment. Life happens in totally unpredictable fashion at times.

We both agree the Fed can print any amount of money it wants and can give this to the Treasury not as a loan, but just as cash in hand.

The Fed is simply the Treasury’s clearing bank. It never “loans” or “gives” money to Treasury, but only accepts deposits just as your bank accepts your deposits. The US dollar is self-funding as it is created in the private sector via appropriations of Congress.

Simple dual entry spreadsheet accounting is used worldwide to track money movements, but it becomes tricky to track money created out of thin air in just one sector. The system requires that every entry in one sector has an accompanying opposite entry in another to record where it came from or went. To accomplish this, every dollar created in the private sector is matched with an entry in the government sector labeled “debt”. This debt label is used because the government “owes” a dollar of tax credit for every dollar it creates, not because it “borrowed” the dollars from anyone or was “given” dollars.

but just to take one stmt of yours that seems just wrong: The treasury could easily erase its debt w/o affecting the economy much. This seems nonsense to me.

The US Congress is the monopoly patent holder on the US dollar and never needs to “get” them from anyone to enable it to spend. Much of the confusion comes from the gold standard limitations to spending that mandated Treasury to sell bonds to match any spending in excess of tax collection (revenue is not an accurate description because those collections are destroyed by that debt entry, so they can’t be respent). Bonds were used to destroy money against the debt in order to allow new money to be created by Congress without overspending the gold reserve. They no longer serve any useful purpose beyond offering an incentive for thrift and leverage in setting interest rates.

When I said, “erase its debt” I was referring to the Treasury bonds held by investors who made the choice to give up their liquid assets (dollars) for future gains. It is just a matter of creating money to purchase back the outstanding bonds prior to their maturity. However, if we continue to sell bonds afterward that money would quickly find its way back to Treasury, or it will be invested in other vehicles, such as mortgage bonds. It would mostly be an exercise in futility that would accomplish little practical gain beyond making wealthy investors wealthier.

Paying that w. tax dollars would crush the economy, so I assume you mean to use some QE scheme to create 16T dollars to pay for it.

Treasury bonds and taxation both destroy/remove dollars via reduction of the debt, so neither can “pay for” the other, or anything. Taxation is permanent and bonds are temporary removal of dollars from circulation. Both demand existing dollars. You have to let go of your “kitchen table finance” thinking if you are ever going to understand federal finance. The issuer of currency functions nothing like a user of currency.

Bonds are sold and retired every day as a normal function of the Treasury and the Fed. Ditto with federal spending and collection, making the debt a rolling and hard to define number. Paying off the actual national debt via taxation without creating additional currency (and debt) would do more than crush the economy. It would remove all currency from circulation and force the default of all private bank debt.

Given that every net dollar in the private sector represents a part of the debt, not just those in bonds, it wouldn’t even be possible without defaulting on any foreign held debt as well. It would literally bring down the economy of the world. In spite of this, it remains the holy grail of politicians and ignorant/corrupt economists.

Here is the problem as I understand it. If we started a QE scheme like that, the world would precipitously stop holding USD.

Our nation’s spending has not been conditional to our ability to sell debt since FDR ended the domestic convertibility to gold for the currency in ‘34. People buy bonds because they hold dollars and want to invest them in safe interest-bearing vehicles. None of our debt holders is printing dollars to purchase bonds, including China. They hold dollars because they exchanged real resources for them. The fact that their dollars are destroyed in exchange for a promise to re-create them at a future date and are not needed to enable the government to spend is partly what makes Treasury bonds so attractive.

You also seem to be using defintions to try to dodge the cost of service on debt.

Interest paid on Treasury bonds is simply another method of creating currency in the private sector, which Congress does without restraint from revenue. If it is a problem, which it will never be, then we can simply stop issuing Treasury bonds without impacting the ability of Congress to spend even one iota. The monopoly issuer of the currency “funds” the purchase of debt with deficit spending, not the other way around. It can never involuntarily fail to pay any obligation denominated in that currency.

Now part of X (call it Z) is not available for use in Y, because the treasury used it to pay bond holders (service interest on it debt). I think we both agree that Z exists, and that is does diminish funds available for Y.

Again, you are relating your own relationship with the currency (or that of anyone who isn’t the monopoly issuer) with the monopoly issuer which can never run out of its own currency and neither has nor doesn’t have money at any time. The federal government simply needs no currency as it creates it on demand. Treasury is not limited in what it can spend except by Congress and its political choices, so, no, we do not agree on this.

The fact that Treasury bonds remove currency from circulation prior to paying interest presents an inflated view of the obligation when the bonds mature and that currency is replaced with new money creation. That impression may be more damaging to our economy than the actual mechanics involved in the transactions. For that reason, and the fact that the interest mostly benefits the already wealthy, I would support ending the issuance of bonds and setting base interest at zero permanently.